Business, 29.10.2020 16:40 ladybugys

Sales during December were 500 units. The cost of inventory at December 31, Year 1 under the FIFO method would be closest to:

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Answer from: jay9251

b. $104,000

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

The Loyd Company had 150 units of product Omega on hand at December 1, Year 1, costing $400 each. Purchases of product Omega during December were as follows:

Date Units Unit Cost

December 7 100 $440

December 14 200 $460

December 29 300 $500

Sales during December were 500 units on December 30. Assume that a perpetual inventory system is used. The cost of inventory at December 31, Year 1, under the LIFO method would be:

a. $100,000

b. $104,000

c. $75,000

d. $125,000

The explanation to the answer is now provided as follows:

The Last In First Out (LIFO) refers to an inventory accounting method in which inventory items purchased last are sold first while the ones purchased first are sold last.

Based on the explanation above, the 300 units of inventory purchased on December 29 is sold first followed by the 200 units of inventory purchased on December 14. This gives 500 units of inventory that were sold. That is,

Units of inventory sold = Units of inventory purchased on December 29 + Units of inventory purchased on December 14 = 300 + 200 = 500 units

Inventory remaining unsold at December 31, Year 1 are the 150 units of product Omega on hand at December 1 and the 100 units purchased on December 7. The addition of the costs of these items give the cost of inventory at December 31, Year 1 under LIFO as follows:

Cost of inventory at December 31 = (Units of product Omega on hand at December 1 * Cost per unit of units of product Omega on hand at December 1) + (Units purchased on December 7 * Cost per unit of units purchased on December 7)

Cost of inventory at December 31 = (150 * $400) + (100 * $440)

Cost of inventory at December 31 = $60,000 + $44,000

Cost of inventory at December 31 = $104,000

Therefore, the correct option is b. $104,000.

Answer from: Quest

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Answer from: Quest

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